A Ponzi scheme that stole $722 million from investors in a fraudulent cryptocurrency mining pool has been broken up by FBI and IRS agents, according a federal indictment.
Craig Carpenito, the U.S. Attorney for the District of New Jersey, announced on Dec. 10 that three men were charged with various counts of conspiracy to commit wire fraud and conspiracy to offer and sell unregistered securities in the BitClub Network.
BitClub Network promised investors around the world shares in the earnings of a major bitcoin mining pool, according to a Department of Justice (DoJ) release. They were also rewarded for bringing in new investors.
However, there were no cryptocurrency mining computers and no earnings, said Carpenito. BitClub Network was “little more than a modern, high-tech Ponzi scheme,” he added.
“[D]eploying elaborite [SIC] tactics… [t]he defendants allegedly made hundreds of millions of dollars by continuing to recruit new investors over several years while spending victims’ money lavishly,” said Paul Delacourt, the assistant director in charge of the FBI’s Los Angeles Field Office, according to the release.
Matthew Goettsche, 37, of Lafayette, Colo., and Jobadiah Weeks, 38, of Arvada, Colo., were charged with wire fraud. They and Joseph Abel, 49, of Camarillo, Calif., face charges of selling unregistered securities. Two co-conspirators remain at large.
The scheme ran from April 2014 through December 2019, according to the release. The DoJ is looking for victims, who can make contact at justice.gov/usao-nj/bitclub.
“This was a classic con game with a virtual twist,” said John Tafur, special agent in charge of the IRS Criminal Investigation division’s Newark Field Office. “[F]alse promises of large returns for investing in the mining of Bitcoin.”
“Goettsche, Weeks, and others conspired to solicit investments in BitClub Network by providing false and misleading figures that BitClub investors were told were ‘bitcoin mining earnings,” the DoJ statement claimed. They also sold unregistered shares in the company, traveling around the United States and the world to entice customers.
Goettsche displayed a great deal of contempt for his victims, the indictment alleged. He called BitClub Network’s “target audience… ‘sheep,’ and said he was ‘building this whole model on the backs of idiots.’”
Another conspirator called them “the typical dumb MLM investor.” That referred to multi-level marketing, the business model of legal companies like Amway.
Goettsche also appears to have gotten greedy, according to the DoJ’s statement. In Sept. 2017, investigators said he emailed another conspirator suggesting it was time to cash out. Bitclub Network should “[d]rop mining earnings significantly starting now” he recommended. That way, he could “retire RAF!!! (rich as f**k),” the email reportedly said.
In one of the investor videos, Abel allegedly called BitClub Network “the most transparent company in the history of the world that I’ve ever seen.” In another, he “assured investors that BitClub Network was ‘too big to fail.’”
Goettsche and Weeks are facing up to 20 years in jail for wire fraud, while they and Abel are looking at five years and a $250,000 fine for the securities charges.